ADCOCK Ingram would use the proceeds from the sale of a multibillion-rand 51 percent stake in its critical care division to fund its growth strategy which has seen it make acquisitions both locally and in other parts of Africa, according to Mike Mabasa, a spokesman for the pharmaceutical firm. The drugs company said the Swiss multinational Baxter Healthcare had notified it of an intention to exercise a call option to acquire 51 percent of the critical care division, which supplies mainly hospital products. The valuation and regulatory approval processes were expected to take at least four months and might continue for the remainder of the calendar year. In a prelisting statement two years ago, Adcock said it expected to dispose of the stake for no more than R4.8 billion. But Mabasa said the company did not know if the price range would still be in the same region because economic conditions had changed drastically. Adcock would know for certain after the due diligence process has been completed. It was not yet clear if Adcock would sell the rest of the business. Mabasa said that would be determined by the board and the company would inform the market at a later stage. Baxter used to own 40 percent of the hospital division of Adcock, which the Swiss firm sold back to Adcock to comply with international sanctions 23 years ago. The two have a licensing, distribution and supply agreement, which was recently extended by 15 years. Quinton Ivan, a portfolio manager at Coronation Fund Managers, said the announcement removed some of the uncertainty regarding the future of the critical care division. Ivan said that although the sale would mean a loss of an earnings stream for Adcock, it should be offset by potential value-accretive acquisitions management might conclude with the proceeds. He said that barring a sizeable acquisition, he did not think the pharmaceutical firm would sell the remaining 49 percent because the division was a good, stable, cash-generative business. Jonathan Larcombe, an equity analyst at Old Mutual Investment Group, said the R4.8bn was an indicative high-water price, not a fair market valuation. He said a valuation range of between R1bn and R2bn was possible depending on net cash receipt expectations into the future.

Slindile Khanyile: Business Report, 10 February 2010